Can financial incentives work to help people quit smoking? The CARES (Committed Action to Reduce and End Smoking) Program, creates a commitment contract that provides financial incentives for smokers who wish to quit smoking. Smokers offered the product were more likely to be smoke-free 6 and 12 months afterwards!
Microfinance institutions have increased access to financial services over the last few decades, but provision in rural areas remains a major challenge. Traditional community methods of saving, such as ROSCAs can provide an opportunity to save, but do not allow savers to earn interest on their deposits as a formal account would, or provide a means for borrowing. Savings Groups attempt to address these shortcomings by forming groups of people who can pool their savings in order to have a source of lending funds.
While savings research shows the promise of access to savings for specific demographics, i.e. entrepreneurs & members of ROSCAS, as well as through commitment devices, there is little evidence on impact of a simple savings account on the general population.
Policy Question:
The potential benefits of a formal savings account are manifold and include improved ability to cope with shocks, asset accumulation and space to plan for the future. There has been promising though limited evidence to date on the potential of access to savings accounts for the poor. Additionally, such studies have thus far focused on specific subsets of the population such as entrepreneurs or, for commitment savings studies, existing clients of a bank or microfinance institution. The current literature lacks studies that consider how generally poor households behavior changes when offered access to financial markets through a savings account.
In addition to the lack of banking infrastructure, many other constraints limit the availability and effectiveness of savings services for the poor. There has been very little research to map the demand for services so that products can be designed with clients’ needs and cash-flow in mind. These constraints in the supply and demand for savings service point to the need for specialized market research and product development efforts. Efforts to unveil the actual needs and perceptions of low-income clients to better devise products and incentives for them may result in more rigorous savings behavior.
Policy Issue:
By the year 2000, individuals living outside their country of birth had grown to nearly 3% of the world’s population, reaching a total 175 million people.[i] The money many of these migrants send home, remittances, is an important but relatively poorly understood type of international financial flow. Currently, the use of savings services is low among many remittance receivers. Increasing savings has the possibility to mitigate the negative impacts of unforeseen circumstances, such as medical emergencies or economic hardship.
We evaluate a unique "commitment" savings account, in which individuals restrict their right to withdraw funds until they have reached a self-specified goal. Clients are also given the option to automate transfers from a primary account into the commitment savings account, and given the option of buying a lockbox to store their money, with only the bank possessing a key. The account helped people save more after one year, and increased decision making power for women in the household.
Informal lending and savings institutions often include regular door-to-door deposit collection of cash, and some banks have adopted similar services in order to expand access to banking services in areas that lack physical branches. Deposit collection services may help clients increase their savings levels and benefit the banks by identifying potential loan clients; however, clients with larger savings amounts obviously have less need for borrowing. This study aims to better understand how deposit collection service affects the saving and borrowing behaviors of the clients.
The deposit-collection service resulted in a substantial increase in savings for those offered the service.
Surveys on financial knowledge and behavior have revealed that individuals in both developed and developing countries around the world lack adequate knowledge to make informed financial decisions. Empirical evidence demonstrating correlations between financial literacy and various measures of well-being has directed service providers, donors, and policymakers to include financial training and business education programs as part of broader anti-poverty strategies. Financial education, especially when provided in early life stages, has the potential to create long lasting impacts. Intuitively, provision of education in financial skills offers useful tools to persons of all ages facing distinct economic challenges, yet evidence of impact is thin and mixed. This project seeks to identify an effective program curriculum and delivery for financial education for primary schools students. Specifically, it will measure the impact of financial education on students’ behaviors and attitudes and will allow future research to determine if this early education has a bearing on future financial decision making.
